Finance for BTLs: Helping you become a landlord

Amateur and professional investors alike are investing in residential property, with the intention of letting it out. It can provide an alternative to a pension for some investors, while others use it as part of a business plan, and build up a large property portfolio.

Unlike many other types of investment, it can offer both income and capital growth. You could enjoy a regular income from a buy to let property in the form of rent, and steady capital growth if house prices continue their move upwards.

But all types of residential property are expensive, and relatively few people have sufficient cash to buy outright. By gearing, or borrowing to buy rentable property, you can secure the property you need, and hopefully use it to generate sufficient funds to pay off the loan, or to service the interest payments on it.

What is a Buy to let Mortgage?

If you buy a home with a conventional mortgage, the lender will almost certainly include clauses that will prevent you from letting out the property. A Buy to let Mortgage contains no such restrictions and is specifically defined as a loan for buying or refinancing a property that is let to tenants rather than lived in by the borrower.

They are similar in principle to a homebuyer's mortgage, but are classed as a business transaction and are not subject to the same regulations as residential mortgages. This means that they are more flexible, but rates and fees are typically higher than those you would find with a standard residential mortgage.

Buy to let Mortgages are a lot like ordinary mortgages, but with some key differences:

• The fees tend to be much higher
• Interest rates are usually higher
• The minimum deposit for a buy to let mortgage is 25% of the property's value
• Many buy to let mortgages are interest-only. This means you don't pay anything each month, but at the end of the mortgage term you repay the capital in full
• Most buy to let mortgage lending is not regulated by the Financial Conduct Authority (FCA)

To find out more about the types of mortgages available, speak to Rangewell today. Even if you have an outstanding mortgage, we can help.

Who are buy to let mortgages for?

A buy to let mortgage is a form of lending suited for those looking to purchase property for investment purposes (for others to live in), rather than getting a mortgage for somewhere you want to live themselves.

Looking for a capital repayment mortgage? Speak to us today.

How do buy to let mortgages work?

Buy to let mortgages are an excellent way for new landlords to take their first step into the property market. They work in the following way:

1. You put down your deposit
The standard deposit for a buy-to-let mortgage is higher than a traditional mortgage. Usually, it's around 25% of the property's value (but can vary between 20-40%)

2. Interest only payments
Most borrowers will choose to take out an interest-only mortgage for a selected property. So they'll pay interest every month, but not the total capital amount.

3. Payback the total amount
At the end of the mortgage, the lender will pay back the capital debt (the total amount of the mortgage). Often borrowers will save into an ISA to repay the capital or may sell the investment property to pay off the debt. 

Get in touch today to find out about your next landlord mortgage and to get the best mortgage advice around. We'll talk you through the mortgage costs for your mortgage loan and your mortgage interest payments.

How much can be borrowed with a buy to let mortgage?

The maximum amount you can borrow will be linked to the amount of rental income you should expect to receive. Typically, a lender will need the income to be 25-30% higher than your mortgage payment.

What are the interest rates like with a buy-to-let mortgage?

The interest rate you'll pay on the buy-to-let mortgage will depend on the amount you borrow, your financial situation, how much rental income you'll bring in, and finally, the type of mortgage you decide to take out.

Which type of interest rate should I get?

The most common remortgage deals include:

• Fixed-rate: This is when the interest rate stays the same for a specified amount of time. This will offer peace of mind that your payments will remain the same every month. Most fixed-rate deals will be 2 years or 5 years, but some may run for longer. 
• Tracker mortgages: This variable rate mortgage tracks the Bank of England's base rate at a set percentage above or below. If the Bank of England rates rise or fall, the interest you pay on your mortgage will do the same. This is good when rates are falling, but you'll need to ensure you can make the payments when rates rise. 

Buy to let Mortgages can be interest only or repayment depending on your investment strategy. The repayment route is often suited to investors using property as an alternative pension plan or looking to build a small property portfolio. With monthly capital and interest repayments, the investor can be sure that at the end of the mortgage term the full loan is repaid.

The interest-only route is usually more popular with professional landlords and property investors.

To find out about your borrowing limits, get in touch today. We'll find a mortgage rate that works for you. 

Who is eligible for a buy to let mortgage?

A buy to let mortgage is a form of lending suited for those looking to purchase property for investment purposes (for others to live in), rather than getting a mortgage for somewhere you want to live themselves.

Unlike residential mortgages which are calculated on the basis of your salary, Buy to let Mortgages are based on the revenue your property will generate. The mortgage lender will make a rent to interest (RTI) cover calculation. This means that you will need to show that you can obtain enough rental income from a tenant to cover the interest on the mortgage.

RTI cover calculations vary between lenders. The rental income usually has to be between 125% and 130% of the monthly mortgage repayment. Many lenders also require a minimum income of £25k per annum in addition to the income made from rent.

Most buy to let mortgage lenders impose a maximum age of 75 on the maturity of the loan, however, there is a small number that extends this to 85.

Speak to an expert mortgage provider today, we'll talk you through everything you need to know about the repayment charge.

What are the costs of a buy to let mortgage?

Set-up fees which include arrangement, booking and valuation for Buy to let Mortgages can be higher than for residential ones. In some cases, these initial fees can be as high as 3% of the value of your loan. It makes sense to pay these fees in cash - although it is possible to add them to the amount you borrow, it is a costly option. If you add the fees to the mortgage you'll pay interest on them over the life of the loan.

Is it possible to remortgage an existing property?

It may be possible to arrange a Buy to let Mortgage on a property that you already own, and which is already tenanted. This will allow you to raise funds to use as you wish - and could be a simple way to raise the cash to buy additional property.

Buy to let solutions from Rangewell

The property market is highly competitive, and it is important to have expert help to get the kind of funding that will help you reduce your outgoings.

Many high street banks and building societies offer buy to let mortgages, and there are also many providers who are only available through intermediaries who can offer specialist advice.

At Rangewell, we have access to the full range of buy to let mortgage deals, along with other property solutions such as HMO Finance and Property Development Finance to name a few. It lets us use our property finance expertise to support your business – and ensure that you have the financial solutions you need. We can help you reduce the costs of the finance you need, helping you retain more of the revenue your property generates.